SEC. 9. USE OF SUBSTITUTE FORMS

1099–DIV FOR 1997

The rules set forth in this section and in section 10 previously have been published in Announcement 97–109, 1997–45 I.R.B. 12. RICs, REITs, brokers, and others reporting capital gain distributions on the 1997 Form 1099–DIV must provide additional information with their statements to recipients. Payers must continue to report the total capital gain distributions in box 1c. Payers should also advise recipients that they cannot report capital gain distributions on Form 1040, line 13, as stated in the official 1997 Form 1099–DIV. Rather, they must report the distributions on Schedule D (Form 1040), line 13, column (f).

In addition, payers must provide to recipients information sufficient to determine the following:

.01 The amount of 28% rate gain distributions. Payers should advise recipients to report this amount on Schedule D (Form 1040), line 13, column (g).

.02 The amount of unrecaptured section 1250 gain distributions. Payers should advise recipients to report this amount on Schedule D (Form 1040), line 25.

Payers may provide this additional information to recipients on a substitute statement or on a separate statement. Payers are not required to report the additional information to the IRS.

SEC. 10 USE OF SUBSTITUTE FORMS 2439 FOR 1996–1997

RICs and other filers completing the 1996 Form 2439 for fiscal years ending after May 6, 1997, must provide additional information with their notices to shareholders. Filers must continue to report the total undistributed long-term capital gains for the year on line 1 of Form 2439. Filers should also advise individual shareholders that they cannot report the amount on line 1 on Schedule D (Form 1040), Part II, line 12, as stated in the official 1996 Form 2439 instructions. Rather, they must report the amount on line 1 on the 1997 Schedule D (Form 1040), line 11, Column (f). In addition, filers must provide to

Because Y does not have a post-October capital loss for its taxable year ending July 31, 1998, it does not make a deferral adjustment. Because Y has a taxable year ending in July and a pre-November net capital gain, it must make a bifurcation adjustment. Y must determine the maximum distributable amounts of 20% rate gain and unrecaptured section 1250 gain separately for the pre-November and the post-October portion of its taxable year ending July 31, 1998. The sum of these amounts determines the various maximum distributable amounts of gain for the entire taxable year. For the pre-November period, Y ’s maximum distributable 20% rate gain is $150. For the post-October portion of the year, Y ’s maximum distributable 20% rate gain is $50. Y ’s net capital gain for the entire year is $300. For this taxable year, therefore, Y may designate up to $300 of capital gain dividends, of which up to $200 may be designated as 20% rate gain distributions. The amount that may be designated as 28% rate gain distributions (or that will be deemed a 28% rate gain distribution if designated only as a capital gain dividend) is $300 minus any amounts properly designated as 20% rate gain distributions.